All posts tagged regulation

Here’s an update on the South Korean regulators’ investigation into Deutsche Bank AG.

According to Dow Jones Newswires, the Financial Services Commission said Monday that it’s looking into the involvement of Deutsche Bank’s Hong Kong unit and South Korea securities unit in a sharp fall in the benchmark Kospi index in the last half-hour of trade on November 11.

It’s the first time since then that the FSC has specified which units it’s investigating, though the body did send staff to Deutsche Bank’s Hong Kong office in December as part of the probe.

In its first foray into the U.S. market, the world’s largest bank has gone for a quiet start.

Industrial & Commercial Bank of China Ltd. has agreed to buy an 80% stake in Bank of East Asia Ltd.’s U.S. subsidiary, The Wall Street Journal reports. Bank of East Asia doesn’t break out the value of its U.S. assets in its balance sheet, but the report says the deal is worth some US$140 million. Bank of East Asia has 13 branches in the U.S. in California and New York.

It’s a no-brainer for both parties, who already have a working relationship after ICBC acquired a 70% stake in Bank of East Asia’s Canadian operations. Bank of East Asia booked a gain of HK$230 million (US$29.4 million) in that deal. Its six branches have since been rebranded ICBC Canada.

Bank of East Asia, which has made China the main focus of its operations, should be happy to find a willing buyer for its U.S. operations. These have continued to suffer from the aftermath of the subprime crisis. In its interim results last year, the Hong Kong lender said Bank of East Asia (U.S.A.) N.A. saw its impaired-loan ratio rise as it disposed of some loans. The parent’s overseas operations excluding China, which also include businesses in the U.K. and Southeast Asia, recorded an operating profit of HK$50 million after an impairment loss of HK$126 million as of June 30 2010.

The Hong Kong stock exchange’s decision to allow Chinese companies listed in Hong Kong to use mainland accounting standards has just won support from a big name – and that may not be a good thing.

As the first mainland Chinese company to list H-shares in Hong Kong in 1993, Tsingtao Brewery is lead ing the way once again and could become the first company to drop its foreign auditors if shareholders approve the measure at an extraordinary general meeting next month, according to a statement to the Hong Kong stock exchange on Dec. 30. The Financial Times reported on the statement Wednesday.

In an interview with Caijing magazine published in today’s Wall Street Journal Asia, the chairman of the China Securities Regulatory Commission, Shang Fulin, discusses the challenges still facing the development of China’s capital markets.

In the interview, Mr. Shang lays out the reasons why insider trading is still rife in China. These include “weak awareness,” lengthy decision-making processes, an “unhealthy stock market culture” and an “incomplete enforcement system.”

Hong Kong’s securities regulators are moving to gather more information on a mysterious force in the market: dark pools.

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The pools, which now account for almost 13% of trading volume in the U.S. according to Rosenblatt Securities Inc., are gaining traction in Hong Kong–but no one knows how much. Estimates hover between 1% and 4%.

Following an October consultation report from the International Organisation of Securities Commissions which said it was “particularly important” for regulators to have accurate information on how much trade actually occurs in dark pools, the city’s exchange operator will now require alternative liquidity providers (dark pools included) to start reporting their trades using a new transaction code.

Those not in favor of the decision cited concerns that bringing mainland audit firms to Hong Kong could erode investors’ confidence in the quality of Hong Kong’s capital markets and that the new regime will reduce the regulatory power of Hong Kong watchdogs.

But the exchange and some industry participants are defending the move. They say that China’s accounting and auditing standards have improved dramatically recently, and are on the road to convergence with International Financial Reporting Standards, also used in Hong Kong.

music, brandishing crossed-out photos of outgoing chief executive Martin Wheatley and even placing wreaths typically used at Chinese funerals at the entrance of the building. They say the Securities and Futures Commission failed to protect investors who were left with nearly worthless structured products linked to Lehman Brothers after the bank collapsed in late 2008.

The SFC and Hong Kong Monetary Authority, which regulates the city’s banks, were criticized by legislators and others who accused them of insufficiently regulating banks on the sale of the complex structured products, including minibonds, which were, in fact, not bonds at all. They were issued by Lehman Brothers and distributed by banks in Hong Kong and elsewhere.

When Martin Wheatley steps down next summer, his successor will need to tackle some tricky issues. China is allowing bankers to create new products and services to make use of yuan piling up in the city’s bank accounts. How much of the trading remains in Hong Kong will mostly be decided in Beijing, but the regulator’s ability to ensure steady development of the market will be a key factor. So will his or her ability to work effectively with counterparts in the mainland.

Another area important for Hong Kong’s future as a financial center will be the global shift of over-the-counter derivatives onto exchanges. Exchanges can charge higher prices for clearing these more-complex products, such as interest-rate derivatives, than for clearing equities.

Asian financial regulators, by moving too slowly to develop capital markets and imposing capital controls, are in danger of preventing national banks from becoming regional players, according to an industry report published this week.

Shallow securities markets, particularly in countries such as China, Malaysia, India, Indonesia and Thailand, will create an uphill struggle for regional aspirants such as Australia and New Zealand Banking Group and DBS, Southeast Asia’s biggest lender, consultancy Oliver Wyman said in a report entitled “The Future of Asian Banking.”

A reminder to Singapore and Hong Kong: They might be locked in a perennial battle to become Asia’s foremost financial center, but neither is quite up to scratch on corporate governance standards.

That’s the message from the Asian Corporate Governance Association, which says that “even the best Asian markets remain far from international best practice.”

In a report published by ACGA jointly with brokerage firm CLSA Asia-Pacific Markets, Hong Kong slipped back to second place this year behind Singapore after coming in No. 1 for the first time in 2007. But with scores of 65% and 67% respectively, both fell short of the organization’s 80% benchmark, meaning they failed to achieve “world-class” corporate governance standards. Of the 11 markets examined in the report, Japan ranked third with a score of 57, and at the bottom was the Philippines with a score of 37.

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